A new protocol to the agreement on double taxation avoidance between Russia and Cyprus was ratified

16.02.2012

15 February 2012 the State Duma of the Russian Federation completed the procedure of ratification of the protocol to the agreement on double taxation avoidance between Russia and Cyprus. The document was signed by the parties in October 2010. Cyprus ratified the new version of the agreement in August 2011. Russia however was not in a hurry with the appropriate procedure. The official version of such a long process – is the long period of international ratification procedures. According to experts’ opinion, the real reason is waiting for confirmation of the actual readiness of Cyprus to the information exchange. Cypriot side insisted that it would begin preparations for the exchange of relevant information after the protocol comes into force and the exclusion of jurisdiction from the Ministry of Finance blacklist takes place.

So far this protocol has not created any threats to the Russian business as the possibility of obtaining information from the Cyprus tax authorities is only declared.

One of the most important articles of the protocol for business – is the introduction of taxation of transactions with shares or shares of companies owning real estate in Russia. "Now real estate is formalized for a company registered in Cyprus - said the Deputy of Minister of Finance Sergey Shatalov - In transactions not real estate is sold but the company. In the previous version the taxes in this case were not paid in the Russian Federation. Now – they must be paid."

The protocol after signing the draft on ratification by the president of the Russian Federation will come into force on the 1st of January 2013, and the provision concerning real estate – in 2017.

Expert’s opinion

“Finally a long-awaited ratification of the protocol took place. Signed in 2010 the document raised many questions and worries among Russian businessmen. Cyprus at the moment is a major investor in Russia. And, of course, there are fears that Cyprus will give all the information to tax authorities of Russia at any of their request. Nevertheless, it is not so simple: the request must be official, and do not forget that Cyprus can not so easily “abandon” the Russian money. Especially under the conditions of the current crisis. And if a wave of "leakage" of information starts the republic will suffer. Therefore Cyprus must maneuver in order to continue to retain a strong position.

Moreover, after the ratification of the Protocol Cyprus is automatically removed from the "black" list of the Ministry of Finance. And that will add only the dynamics to jurisdiction.

All the other pros and cons we can evaluate not earlier than in a year”.

On the basis: www.taxpravo.ru

Lomakina Irina ( director of Moscow office of Honest&Bright)